Democrats reportedly seek greater SEC control over crypto after CLARITY Act collapse
House Democrats are reportedly drafting a new crypto market structure bill that would significantly increase the U.S. Securities and Exchange Commission's oversight role, following the collapse of the CLARITY Act.
Democratic lawmakers are actively working on a comprehensive overhaul of the U.S. cryptocurrency regulatory framework. Industry sources indicate the new proposal, which remains unpublished, is built upon the investor-rights framework championed by Rep. Maxine Waters.
The bill would mark a significant shift in regulatory authority, aiming to grant the Securities and Exchange Commission greater control over digital asset markets. This move comes in the wake of the failed Senate bid to advance the CLARITY Act, which saw cloture defeated 49-50 on September 15.
The proposed legislation would also seek to limit the role of the Commodity Futures Trading Commission (CFTC) in certain areas of oversight. A central goal is to establish clearer definitions for how different regulatory bodies divide jurisdiction over various crypto activities.
Stricter customer protections
The new framework would introduce a suite of rigorous customer protection measures for retail-facing digital asset firms. These rules would mandate that exchanges, brokers, and custodians adhere to strict operational standards.
A key provision would require that customer withdrawals and transfers be processed within 24 hours, with exceptions only for documented good-faith fraud. Firms would also be required to obtain affirmative, revocable consent before rehypothecating, lending, or staking customer assets.
The bill would mandate that crypto customer orders take priority over proprietary orders under best-execution practices. Additionally, affiliated proprietary traders or market makers would be barred from trading against customers on the same platform.
The text added a one-page fee disclosure, next-business-day settlement, and an indicator showing the share of customers holding an asset at a loss.
Firms would be required to hold customer assets in segregated, bankruptcy-remote accounts and join the Securities Investor Protection Corporation (SIPC) if eligible. Alternatively, they would need to fund an equivalent customer-asset protection arrangement.
To ensure transparency, the proposal calls for cryptographically verifiable proof of reserves, which must include a licensed accountant's monthly attestation. This would provide a more robust mechanism for verifying that an exchange holds the assets it claims to hold.
Expanded SEC oversight
The proposed legislation would substantially expand the regulatory footprint of the Securities and Exchange Commission (SEC) within the crypto sector. This shift aims to address the current regulatory gaps that leave many digital asset intermediaries and issuers in a state of uncertainty.
Under the new framework, exchanges would face added requirements for registration, disclosure, order-handling, and custody duties. Custodians would also be subject to higher standards for asset segregation and verification.
The bill would also seek to redraw the legal definitions that currently sort activity between the SEC and the CFTC. This could result in a more unified approach to regulating the entire crypto market, rather than a fragmented one.
The March 2026 SEC and CFTC interpretation that treats Bitcoin as a digital commodity would remain a point of reference. However, the new bill would seek to provide explicit statutory authority for the SEC to oversee these digital commodities and related intermediaries.
Path to becoming law
The bill faces significant hurdles in its path to becoming law. It requires identical text to be passed by both the House and the Senate, followed by a presidential signature or a veto override.
Open items that remain unresolved include the precise division of authority between the SEC and CFTC, the cost of new exchange obligations, and how to treat decentralized finance (DeFi) and developers. There are also ongoing disagreements over ethics provisions and bank concerns regarding stablecoin incentives.
The next major crypto fight may hinge more on whether ordinary investors gain enforceable rights when an exchange delays a withdrawal or fails. Without a clear statutory framework, customers currently depend on existing law, state rules, and each platform's individual terms.
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